Alcoa says storm to hit profit

Shares slide as analysts follow with downgrades

SAN FRANCISCO (MarketWatch) -- Alcoa Inc. shares shed almost 6% on Friday after the company warned that Hurricane Rita, low aluminum prices and higher raw-material costs would take a bite out of its third-quarter profit.

Alcoa's stock
AA, +0.64%
a component of the Dow Jones Industrial Average, fell $1.48 to finish at $24.42, touching on a two-year low of $23.81 earlier in the session.

The Pittsburgh-based metals giant said Thursday it expects earnings from continuing operations to come in at 27 cents to 31 cents a share. Analysts polled by Thomson First Call had previously forecast a profit, on average, of 44 cents a share.

"This quarter, we are squeezed between a weaker upstream pricing environment and significantly higher energy and input costs," said Chairman and Chief Executive Alain Belda. "We continue to face challenges from escalating costs in energy and raw materials."

Alcoa added that seasonal weakness in Europe and in the automotive sector also had hit the bottom line.

The company said the temporary closure of its Point Comfort, Texas, refinery and the Lake Charles, La., anode plant due to Hurricane Rita would have an "unknown" impact on third-quarter results.

Prudential followed by downgrading the stock to underweight from neutral weight and cut its price target to $20 from $30.

Analyst John Tumazos said while Alcoa's warning reinforced his reasons for downgrading the stock to neutral weight from overweight on Sept. 2, he hadn't properly estimated "the magnitude of the deterioration of the price-cost relationship."

"The impact of higher raw material and energy costs will be a bigger problem than we originally thought...," Tumazos said.

Goldman Sachs' Albertos Arias lowered his rating to underperform from in line, as he expects the cost pressures to continue in an environment of declining aluminum prices.

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